How Nigeria Loses Billions In Mining Taxes And Royalties

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Nigeria is losing huge revenues running into billions of naira from the mining sector, due to weak mining regulations and policies and inefficiency of government agencies that should be responsible for collection of royalties, taxes and levies from mining companies operating in Nigeria, a Nigeria Extractive Industries Transparency Initiative (NEITI) report once revealed.
According to the report, mineral titles in Nigeria are issued by the Mining Cadastre Office (MCO) to many companies, but only a few pay their annual fees and other fees as stated in the Nigerian Minerals and Mining Act, 2007.
Increase in mineral exploration activities arising from the creation  of the Nigeria Geological Survey Agency (NGSA), which had done a geophysical survey of the country’s mineral abundance, led to the creation  of  the  MCO, which is  charged  with  the  administration  of  miner-al titles  on  a  first-come-first-served and use-or-lose-it basis, and resulting in increase in mineral title acquisition by both local and international mining operators.

As such, all companies operating in the solid minerals which engage in exploration or mining operations are to pay royalties, as stipulated in the Nigerian Minerals and Mining Act, 2007, section (33). Royalty payments are supposed to be collected by the Mines Inspectorate Department (MID), on behalf of the federal government.
But whether this section of the Mining Act has been adhered to by mining companies in the country, or if they have taken advantage of government lapses in enforcing these laws remains debatable.

According to the approved 2002 royalties price list by the Federal Ministry of Mines and Steel Development, Nigeria was losing an average of N1,960 and N2,960 from royalty payment for every ton of granite at the outdated price of N40 per ton. This translates into an aggregated revenue loss of N4.05 billion to the Federation Account, arising from price variations in the payment of royalty on granite, laterite and sand by companies.

The NEITI report, which covers 2007 to 2010, showed that earnings from the solid minerals sector by way of royalties, tax and levies totalled N3.655bn.

Another NEITI/CBN report puts total revenues from the solid minerals sector at N31.449bn in 2012. The revenue stream from the solid minerals sector is composed of 84.18 per cent of taxes received by the Federal Inland Revenue Service (FIRS). Mining taxes received by the MID and MCO represented 3.48 per cent and 2.24 per cent respectively.

The report said, “At the beginning of the reconciliation, the total amount reported by the Government Entities of Nigeria from the Solid Minerals Sector amounted to N49.759bn.

“We note, however, that the total net difference between the amounts declared by reporting companies’ and those of the government entities amounted to N6,53bn (13 per cent). At the end of the reconciliation, a total amount of N27.560bn was reported to have been received by the government between January 1 and December 31, 2012. A net difference of N2.bn (7.3 per cent) remained reconciled.

According to the data collected from the solid minerals companies, we have calculated the royalties that should be paid to the MID based on quantum reported during the reconciliation work. The difference between amounts really paid and those calculated amounting to N12,089m, representing 1.4 per cent of the total royalties as declared by the MID.”

The inability of states to exploit the resources in their domain can also be partly traceable to the 2007 Mineral Act, which vests the ownership of solid mineral on the federal government.

Alhaji Sani Shehu, president of the Miners Association of Nigeria, said until mining laws are adequately strengthened, the nation will continue to lose huge revenue to the companies which evade payment of royalties and other levies.

“Government laws need to be strengthened to curb activities of illegal miners as they are the major tax evaders. Most of them have only exploration licences and don’t have mining licences, yet they carry out mining activities which is illegal and completely negate the provisions of the Minerals Act,” he said.

Unfortunately, there are no clear official records from the Ministry of Mines and Steel Development on the actual volume of minerals exported out of Nigeria within the period under review. However, the few records available relate to transactions that were done by the formal players as they passed through the Central Bank of Nigeria, Nigeria Customs Service and Nigeria Export Promotion Council.

A solid minerals consultant Mr. Oluchi Nwoko, attributed the non-remittance of royalties and levies to the decapitation of the Mines Inspectorate Department of the Ministry of Mines and Steel Development.
According to Nwoko, due to the poor funding the Ministry receives, it becomes difficult for so many of the agencies and department under it to function optimally.

“Some corporate companies live up to their responsibility by paying their taxes, royalties and other levies. They have to because it normally forms part of their annual reports to NEITI. It is very possible as well for some of them to evade tax, which is a natural tendency in any endeavour. But most especially, the smaller companies and illegal ones are the major culprits.

“Due to the inadequate funds the Ministry receives, the Mines Inspectorate Department, which is saddled with the responsibility of enforcing payment of such levies, find it difficult to even move around to some of these mining sites which are mostly in the interior parts of the country. Until more funds are allocated to the sector, I’m afraid we would just be going round in circles,” Nwoko said.

For a country that has millions of metric tonnes of raw solid minerals yet untapped, Nigeria has no business not reaping bountifully from mining levies and royalties.

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